Lowering Drug Prices by Putting America First

Overview

Executive Summary

Executive Order 13948, titled "Lowering Drug Prices by Putting America First," issued by President Donald Trump on September 13, 2020, aims to reduce prescription drug prices in the United States by enforcing pricing practices utilized in other developed nations. This order mandates that Medicare, the largest payer of prescription drugs in the U.S., pay no more than the "most-favored-nation price" for certain high-cost drugs, an alignment with the lowest price offered by drug manufacturers to any OECD nation with a comparable per-capita GDP.

Policy Goals

The EO seeks to address the inequity in drug pricing, where Americans pay more compared to other developed countries due to their governments' ability to negotiate lower prices. The EO aims to rectify this imbalance by leveraging the U.S. government's purchasing power through Medicare to achieve similar favorable pricing, ultimately making prescription drugs more affordable for American consumers, particularly seniors relying on Medicare.

Implementation

The order instructs the Secretary of Health and Human Services to develop payment models under Medicare Part B and Part D, testing the application of these pricing changes. This focused approach centers on high-cost drugs with limited market competition, evaluating whether replicating international pricing standards can result in improved economic efficiency and patient health outcomes.

Legal and Policy Implications

Statutory Authority

Implementing EO 13948 operates on statutory structures governing Medicare and the executive's authority in international economic policy. The EO encourages the Secretary of Health and Human Services to explore existing rulemaking mechanisms for adopting these international pricing models, effectively extending the current federal pricing strategies under Medicare.

Constitutional Considerations

While the President can direct executive departments such as Health and Human Services, limitations exist on imposing price controls without Legislative backing. This EO's reliance on regulatory structures to accomplish its goals highlights an executive action distinct from legislative maneuvers, opening potential contentious ground concerning constitutional authority.

Policy Shifts

The EO marks a broader shift towards integrating international benchmarks into domestic economic policy, potentially affecting various sectors beyond healthcare. This strategy suggests a need to assess whether domestic markets should be more aligned with global standards, particularly in areas with significant pricing disparities. This approach sets the stage for future domestic policy adaptations informed by international practices.

Who Benefits

Medicare Beneficiaries

Primarily, EO 13948 benefits American seniors enrolled in Medicare, particularly those who rely on high-cost medications. The alignment of Medicare payments with OECD prices can reduce financial strain and ensure better adherence to treatment regimens, improving health outcomes and minimizing costly medical interventions linked to medication non-compliance.

U.S. Taxpayers

Taxpayers stand to benefit indirectly through the anticipated reduction in Medicare's overall drug expenditure. By aligning with international pricing, the EO aims to alleviate the fiscal burden of Medicare funding, partially supported by taxpayer contributions, thereby promoting fiscal sustainability and potentially reallocating resources towards other public services and needs.

Policy Advocates for Drug Price Reforms

Groups advocating for lower drug prices have long promoted leveraging Medicare's purchasing power to negotiate more favorable terms. Although the EO stops short of granting full negotiation powers akin to nationalized healthcare systems, its emphasis on price alignment with international standards reflects some advocates' long-standing goals of making medicines more affordable and accessible.

Who Suffers

Pharmaceutical Companies

The pharmaceutical industry could face significant challenges under this EO, as companies operating in both the U.S. and other developed markets may see revenue reductions if required to sell to Medicare at lower international prices. This change could pressure companies to reevaluate pricing models or curtail research and development investments to maintain profitability.

Market Segments with Existing High Prices

Drug markets where U.S. prices significantly exceed those in OECD countries are anticipated to experience pricing adjustments. The EO targets these market discrepancies, suggesting that segments facing such price differentials could be subject to mandated reductions, thereby altering industry pricing strategies and dynamics.

Innovation Funding and Development

The industry expresses concerns that decreased prices could reduce investments available for biopharmaceutical research and innovation. Companies argue that high U.S. revenues subsidize global advancements, and imposing international price alignments might restrict innovation resources, impacting future drug discovery and availability.

Historical Context

Precedents in Drug Pricing Regulation

Drug pricing regulation has been an ongoing concern in U.S. healthcare policy, often including attempts to employ America's financial leverage to secure better prices. EO 13948 sits within a historical continuum of these efforts, characterized by bipartisan interest but hampered by industry lobbying and the complexities inherent to U.S. healthcare policies.

Comparative Analysis with Other Policies

Previous executive orders in this field have typically focused on increasing price transparency or enhancing Medicare's negotiating capacity. EO 13948 condenses these objectives into a clear strategy of implementing or surpassing the lowest international prices, reflecting a populist dedication to fairness and equity in drug pricing reform.

Political Ideology and Administration Priorities

The Trump administration's pursuit of regulatory reforms aligns with its broader pro-consumer and economically nationalist policies. The EO captures these priorities by emphasizing domestic economic benefits from equitable prices, advocating that American seniors gain from positions traditionally enjoyed by international beneficiaries of U.S. pharmaceutical advancements.

Potential Controversies or Challenges

Legal Disputes Over Implementation

The EO may encounter legal challenges from pharmaceutical entities claiming that the pricing model infringes statutory jurisdictions or constitutional commerce rights. The order relies on executive capabilities to introduce significant price regulation, offering potential legal contestation grounds.

Congressional Responses

The EO's policy direction may conflict with typical legislative functions involved in drug pricing regulation, prompting Congress, particularly committees overseeing healthcare matters, to either oppose or endorse the order. Legislative proposals may emerge that either exacerbate or neutralize the EO's influence, contingent on broader political dynamics.

Enforcement and Feasibility Concerns

Implementing the "most-favored-nation" pricing concept may present logistical challenges. Determining this price could be disputed if pharmaceutical firms assert its impracticality or argue that differing healthcare systems necessitate distinct pricing models, complicating enforcement and adherence efforts.